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Friday, September 9, 2016

Two columns on one subject – Europe’s decision to discipline Apple for tax-dodging

A
great example to the US on how to deal with corporate tax cheats

Edited
by Will Collette

I
didn’t write either of the two columns that appear together in this article.
Their subject is the same: the decision by the European Union to order Apple to
pay $14.5 billion in back taxes that the company thought it could evade in the
US by technically moving its headquarters to Ireland.

But
Europe isn’t willing to give these tax cheats a free ride, even though these
companies think they are too big to discipline. Economist Robert Reich and
corporate crime expert Phil Mattera give two useful views of the EU’s
recent action and how it offers an example to the US on how to deal with corporate
blackmail.

WARNING
to those with low tolerance for long articles – this is one of those.

Democratic Senator Ron Wyden says it “undermines
our tax treaties and paints a target on American firms in the eyes of foreign
governments.”

P-l-e-a-s-e.

These are taxes America should have required Apple to pay to the
U.S. Treasury. But we didn’t – because of Ryan, Schumer, Hatch, Wyden, and
other inhabitants of Capitol Hill haven’t been able to agree on how to close
the loophole that has allowed Apple, and many other global American corporations,
to avoid paying the corporate income taxes they owe.

Let’s be clear. The products Apple sells abroad are designed and
developed in the United States.

So the foreign royalties Apple collects on them logically should
be treated as corporate income to Apple here in America.

But Apple and other Big Tech corporations like Google and Amazon
– along with much of Big Pharma, and even Starbucks – have avoided paying
hundreds of billions of dollars in taxes on their worldwide earnings because
they don’t really sell things like cars or refrigerators or television sets
that they make here and ship abroad.

Their major assets are designs, software, and patented
ideas.

Although most of this intellectual capital originates here, it
can be transferred instantly around the world – finding its way into a vast
array of products and services abroad.

Intellectual capital is hard to see, measure, value, and track.
So it’s a perfect vehicle for tax avoidance.

Apple transfers its intellectual capital to an Apple subsidiary
in Ireland, which then “sells” Apple products all over Europe. And it keeps
most of the money there. Ireland has been more than happy to oblige by imposing
on Apple a tax rate that’s laughably low – 0.005 percent in 2014, for example.

Apple is America’s most profitable high-tech company and also
one of America’s biggest tax cheats. It maintains a worldwide network of tax
havens to park its global profits, some of which don’t even have any employees.

Sitting atop this network is “Apple Operations International,”
incorporated in Ireland. Never mind that Apple Operations International keeps
its bank accounts and records in the United States and holds board meetings in
California.

It’s still considered Irish. And its main job is allocating
Apple’s earnings among its international subsidiaries in order to keep taxes as
low as possible.

As a result, over last decade alone Apple has amassed a stunning
$231.5 billion cash pile abroad, subjected to little or no taxes.

This hasn’t stopped Apple from richly rewarding its American
shareholders with fat dividends and stock buybacks that raise share prices. But
rather than use its overseas cash to fund these, Apple has taken on billions of
dollars of additional debt.

It’s a scam, at the expense of American taxpayers.

Add in the worldwide sales of America’s Big Tech, Big Pharma,
and Big Franchise operations, and the scam is sizeable. Over 2 trillion dollars
of U.S. corporate profits are now parked abroad – all of it escaping the U.S.
corporate income tax.

To make up the difference, you and I and millions of other
Americans have to pay more in income taxes and payroll taxes to finance the
U.S. government.

Why can’t this loophole be closed? In fact, what’s stopping the
Internal Revenue Service from doing what the European Commission just did –
telling Apple it owes tens of billions of dollars, but to America rather than
to Ireland?

The dirty little secret is the loophole could be closed, and the
IRS could probably do what Europe just did even under existing law. But neither
will happen because Big Tech, Big Pharma, and Big Franchise have enough
political clout to stop them from happening.

Ironically, the European Commission’s ruling is having the
opposite effect in the United States. It’s adding fuel to the demand Apple and
other giant U.S. global corporations have been making, that the United States
slash taxes on corporations that move their overseas earnings back to the
United States.

In other words, they want another tax amnesty.

Congress’s last tax amnesty occurred in 2004, when global U.S.
corporations brought back about $300 billion from overseas, and paid just a tax
rate of 5.25 percent rather than the regular 35 percent U.S. corporate rate.

Corporate executives argued then – as they argue now – that the
amnesty would allow them to reinvest those earnings in America.

The argument was baloney then and it’s baloney now. A study by
the National Bureau of Economic Research found that 92 percent of the
repatriated cash was used to pay for dividends, share buybacks or executive
bonuses.

“Repatriations did not lead to an increase in domestic
investment, employment or R.&D., even for the firms that lobbied for the
tax holiday stating these intentions,” the study concluded.

The political establishment in Washington is preparing for
another tax amnesty nonetheless. In a white paper published
last week, the Treasury Department warned that an American corporation like
Apple, ordered by the European Commission to make tax repayments, might
eventually use such payments to offset its U.S. tax bill “when its offshore
earnings are repatriated or treated as repatriated as part of possible U.S. tax
reform.”

Rather than another tax amnesty, we need a crackdown on corporate
tax avoidance.

Instead of criticizing the European Commission for forcing Apple
to pay up, American politicians ought to be thanking Europe for standing up to
Apple.

At least someone has.

ROBERT B. REICH is Chancellor's Professor of Public Policy at
the University of California at Berkeley and Senior Fellow at the Blum Center
for Developing Economies. He served as Secretary of Labor in the Clinton
administration, for which Time Magazine named him one of the ten most effective
cabinet secretaries of the twentieth century. He has written fourteen books,
including the best sellers "Aftershock", "The Work of
Nations," and"Beyond Outrage," and, his most recent,
"Saving Capitalism." He is also a founding editor of the American
Prospect magazine, chairman of Common Cause, a member of the American Academy
of Arts and Sciences, and co-creator of the award-winning documentary,
INEQUALITY FOR ALL.

Apple’s indignant responseto the European Commission tax ruling has nothing to do with an
inability to pay. The company’s cash pile of more than $200 billion could cover
the assessment several times over.

Instead,
it’s something more akin to the attitude attributed to the late New York
hotelier Leona Helmsley: only the little people pay taxes.

Large
corporations like Apple think that what they do is so important that they
should be able to skirt their fair share of taxes.

Some
of their dodging is covert and some is done brazenly out in the open; some is
done against the wishes of tax collectors and some is done with their full
cooperation.

The
covert portion of Apple’s tax avoidance started to come to light in 2012, when
the New York Timespublished an investigation of the
company’s use of esoteric accounting devices such as the “Double Irish With a
Dutch Sandwich” to route profits in ways that minimized tax liabilities or
eliminated them entirely.

A
year later, the Senate’s Permanent Subcommittee on Investigations issued a report providing additional
details on Apple’s tax tricks. It also held hearings in which Apple CEO Tim
Cook insisted what the company was doing was
simply “prudent” management while Kentucky Sen. Rand Paul brought shame on
himself by declaring that Apple was owed an apology.

While
Congress has done little to thwart corporate tax dodging, the EC used the Senate report to launch an
investigation of Apple that resulted in the recent ruling. Now some members of
Congress are making fools of themselves by protesting that ruling.

As
Apple’s global tax dodging has gotten the most attention, the company has been
able to avoid some domestic taxes with much less bother.

That
because states and localities routinely offer the kind of special tax deals to
individual companies that are banned in Europe, more so now that Ireland’s attempted
end-run was rejected.

This
is seen most clearly in the subsidy packages that Apple and other tech giants
such as Facebook and Google receive when they build new data centers necessary
to handle the ever-increasing volume of human activity taking place in “the
cloud.”

Although
the decision as to where to locate the facilities is based primarily on
considerations such as the availability of low-cost energy (data centers are
power hogs), these companies want to receive large amounts of taxpayer assistance.

As
my colleague Kasia Tarczynska points out in a forthcoming report on the
subject, companies such as Apple regularly negotiate subsidy packages and
special tax breaks worth hundreds of millions of dollars for data centers that
typically create only a few dozen jobs.

In
North Carolina, Apple successfully pressured the state to allow
it to calculate its income taxes through a special formula that will save the
company an estimated $300 million over the 30-year life of the agreement.

Local
officials provided property tax abatements worth about $20 million more. All
this for a project that was to create only about 50 permanent jobs. Despite its
$1 billion cost, the facility did little to boost the local economy.

“Apple
really doesn’t mean a thing to this town,” a resident told a reporter in 2011. Apple went on to
receive generous subsidy packages for additional data centers in Oregon and
Nevada.

Apple’s
various forms of tax avoidance are reminders that large corporations, even
those that profess to have enlightened social views, don’t have respect for
government and resent having to follow its rules.

Rather
than pay taxes and follow regulations, they prefer to make charitable
contributions and undertake corporate social responsibility initiatives. In
other words, they want to do things on their own terms and not comply with the
same obligations as everyone else.

Thought for the day

“Charlottesville is a great place that’s been very badly hurt over the last couple of days. I own, actually, one of the largest wineries in the United States. It is in Charlottesville.”

Donald Trump, responding to a question whether he would go to Charlottesville to offer support and comfort as so many Presidents have done in the past.

Quick fact check: Donald Trump does not own the winery; his idiot son Eric does under the name Eric Trump Wine Manufacturing LLC. And at 36,000 cases annual production, the winery is not even the largest winery in Virginia, never mind the United States.

Information and Feedback

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